Vietnam Daily Market Watch

Ngày đăng December 19, 2018

Market commentary – Domestic both markets fell for a fourth day today, although losses were more modest than yesterday and both markets closed above intraday lows. The VN Index shed around 70pbs, while the HN Index closed down by over half a percent. Turnover again slipped to below recent averages, while foreign trading activity rose significantly and saw foreigners as net buyers to sizeable degree. Market breadth remained on the narrow side, with only 13 stocks going to the ceiling and 19 stocks falling to the floor. The put through market was still active, with put through transactions on both bourses accounting for more than twenty percent of all trades. Very deals in NVL and PNJ dominated proceedings, although large deals were also seen in VJC; GEX and SHB.


Foreigners were active buyers and sellers of VNM and HPG, being net buyers on both issues. Foreigners were also active buyers of PNJ; GEX and CTD, while actively selling CTG; VJC and DXG.


  • Bank shares were mixed to lower as BID rebounded strongly and was joined by VCB; MBB and TCB. They were outnumbered by the losers, however, led by VPB; CTG; and STB. ACB marked time.



Corporate news – CTG held its EGM recently. Forward prospects weak. Downgrade to Underperform. Vietinbank (CTG; Underperform) held its EGM recently with the following items on agenda:


–     approving 2018 targets and 2017 earnings distribution,

–     approving the plan to restructure its Vietinbank Tower project,

–     approving the new BOD and management members, and

–     announcing key items in Vietinbank’s restructuring plan  for 2016-2020 regarding impaired assets, which have been approved by the SBV.


Quick conclusion – Downgrade to Underperform. We see fair value for the stock at VND 22,000 valuing the stock at a 2018 P/B of 1.25x, and a 2019 P/B of 1.17x. We revise down our 2018 forecast for PBT to VND 6,831 billion (-25.8% y/y) and 2019 PBT to VND 7,555 billion (+10.6% y/y), from our original forecasts of VND 10,500 billion (+14.06% y/y) and VND 11,722 billion (+11.64% y/y), respectively. Given CTG’s unexpectedly low targets for 2018 due to a spike in NPLs and the need we suspect for further restructuring and limited loan book growth capacity in 2019. Another crucial factor is the likely need for capital raising given concerns over its low CAR. However capital raising is somewhat complicated by the fact that the FOL is full and that the room for Tier 2 bond issuance is also now almost exhausted. CTG’s valuations are undemanding compared to most other banks, however, uncertainty over its long-awaited capital raising plan and the cost of dealing with legacy assets has meant the stock continues to trade at a discount to sector median valuations.


Unexpectedly low FY2018 targets – CTG finally announced FY2018 targets at its EGM, which was quite unusual as there is only half month left to year-end. Details of FY2018’s targets are as follows.


–     Credit growth of 8-9% y/y, versus the original target of 14% y/y.

–     Deposit growth of 9-10% y/y, versus the original target of 10-14% y/y.

–     An NPL ratio of < 3%.

–     Parent PBT of VND 6,200 billion (-26% y/y).

–     Consolidated PBT of VND 6,700 billion (-27% y/y).


All of the above appear lower than the 9M results, including:


–     9M credit (customer loans and corporate bonds) growth of 9.57% YTD.

–     9M deposit (customer deposits and valuable paper) growth of 11.79% YTD.

–     Parent PBT of VND 7,205 billion (+12.26% y/y).

–     Consolidated PBT of VND 7,596 billion (+5.03% y/y).


With these targets, we expect that CTG will record a loss in Q4 of some VND 765 billion, mainly due to a spike in provisioning expenses and/or a reversal of accrued interest income (given that CTG has a relatively high ratio of accrued interest over Group 1 loans, which remained at 1.75% at the end of Q3 FY2018). CTG’s management stated that consolidated PBT target of VND 6,700 billion would be the minimum number following restructuring plans, and that CTG’s total outstanding credit was VND 909 trillion (+10.3% YTD) at end of November, as the bank has been restructuring its loan book and curtailing loans growth in Q4 in order to enhance profitability and maintain a sufficient CAR ratio.


The FY2017 earnings distribution plan was approved, excluding however a decision regarding dividends – The parent bank FY2017 NPAT of VND 6,717.5 billion is to be distributed as follows.


–     Capital enhanced fund – 5.0% of parent bank NPAT: VND 335.9 billion.

–     Financial reserve fund – 10.0% of parent bank NPAT: VND 671.8 billion.

–     Bonus and welfare fund – 24.9% of parent bank NPAT: VND 1,674.9 billion.


Distribution of the remaining FY2017 earnings of VND 4,035 billion will follow the SBV’s official approval. Which means that the decision whether CTG has to pay cash dividend and the dividend ratio has not yet been determined.


If CTG does not have to pay any cash dividend, its equity will increase by VND 4,035 billion from its undistributed FY2017 earnings (+6.36%). If CTG has to pay a 7% cash dividend, a total  of VND 2,646 billion will be paid out (39.4% of FY2017 earnings), with the balance of only VND 1,389 billion then added to CTG’s equity base (+2.19%).


Basel 2 will be applied from the beginning of FY2019 – Despite its inability to raise new capital over the past three years, being one of the ten designated pilot banks, CTG will apply Basel 2 starting from the beginning of FY2019. With stricter and more comprehensive calculations of risk weighted assets and limited capacity to raise either Tier 1 or Tier 2 capital, credit growth in FY2019 is likely to be curtailed to a lower range as well.


Restructuring of the Vietinbank Tower project – The Vietinbank Tower project was approved since its AGM held in FY2013. This project includes a 68 storey office building, which is to be Vietinbank’s headquarters, and a 48 storey building, which will comprise a luxury hotel and apartments for rent, with estimated investment  of USD 400 million. After more than five years, this project is still pretty much at an early stage, and still far from completion. Given CTG’s difficulties in capital raising and the expected under-utilization of the project, CTG proposed and got approval from shareholders to restructure the Vietinbank Tower project in line with three options as follows.


–     Option 1: Sell the whole project, with CTG to lease back the 68 storey building for its headquarters.

–     Option 2: Sell off the 48 storey building and the podiums and other assets as negotiated. CTG would continue to own the 68 storey building. Under this option, CTG would ask the SBV to approve an adjusted total investment for the 68 storey building, and use it as its headquarters once completed.

–     Option 3: In the event that CTG not being able to sell the whole or part of the project, the bank will continue the construction and development.


CTG preferred option 1, which is a complete sale of the Vietinbank Tower project.


Appointment of a new CEO and new BOD member – Prior to the EGM, on October 31st, 2018 Mr. Le Duc Tho, the CEO was appointed to be CTG’s Chairman, and Mr. Tran Minh Binh, Deputy CEO was appointed to be acting CEO. At the EGM shareholders approved executive position changes as follows.


–     Mr. Tran Minh Binh, currently a member of the BOD and  acting CEO, to be CEO.

–     Ms. Tran Hong Van, currently a member of the BOD, to be Deputy CEO and no longer a member of the BOD.


For FY2018, HSC revises down our forecast and now calls for a PBT decrease of 25.8% y/y to only VND 6,831 billion, from our previous forecast of VND 10,500 billion (+14.06% y/y). Our forecast is based on the following assumptions.


  1. We forecast credit growth of 9% and customer deposit growth of 10%.
  2. We expect NIMs to drop by 8 bps to 2.73% for FY2018.
  3. We forecast that NII will increase by 6.9% y/y to VND 28,930 billion, while non-interest income will increase to VND 6,058 billion (+9.2% y/y), driven by strong growth in fee income (+32.6% y/y).
  4. We estimate that operating expenses will increase 11.4% to VND 16,792 billion.
  5. We estimate that provisioning expense will surge 36.2% to VND 11,366 billion.
  6. The post write-off NPL ratio will remain at 2% after a write off of VND 8,015 billion or 0.93% of the loan book.


With this we forecast profit before tax of VND 6,831 billion (-25.8% y/y) leaving us with an EPS of VND 1,168 and BVPS of VND 17,585. CTG is thus currently trading at a FY2018 P/E of 18.4x and P/B of 1.22x.


For FY2019, HSC’s forecast call for a PBT increase of 10.6% to VND 7,555 billion, based on the following assumptions.


  1. We forecast credit growth of 9% and customer deposit growth of 10%.
  2. We expect NIMs to drop by 2 bps to 2.71% for FY2019.
  3. We forecast that NII will increase by 6.3% y/y to VND 30,738 billion, while non-interest income will increase to VND 7,002 billion (+15.6% y/y).
  4. We estimate that operating expenses will increase 8.7% to y/y VND 18,253 billion.
  5. We estimate that provisioning expense will increase 5.0% to VND 11,932 billion.
  6. The post write-off NPL ratio will again remain at 2% after a write off of VND 10,334 billion, or 1.1% of the loan book.


With this we forecast profit before tax of VND 7,555 billion (+10.6% y/y) leaving us with an EPS of VND 1,292 and BVPS of VND 18,877. CTG is thus currently trading at a FY2019 P/E of 16.6xs and P/B of 1.14xs.


Discount to average sector forward PBs to remain for now for various reasons – CTG is currently trading at a forward P/B of 1.22x versus 1.89x for the listed sector. The discount remains justified in our opinion for the following reasons.


  • Limited capacity to grow its loan book, given that its CAR remains low compared to peers. We estimate that CTG will need to raise capital by some 20% or VND 7,500 billion over the next two years. CTG is still able to raise Tier 2 capital, however, it will be more challenging now. Hence, they will also need a good portion of Tier 1 equity. Given that the FOL is full and that the State ownership stands at 64.46% (already below the minimum of 65%) this is a rather complicated issue. Decision 986 of the Prime Minister regarding the development strategy for the banking sector until 2025 indicated that minimum State ownership at SOCBs will be 51% in the 2021-2025 period, and remain at the current level of 65% until then. As a consequence, CTG will have to curtail its credit growth to secure sufficient CAR level, especially when Basel 2 is applied from the beginning FY2019. Thus assets and credit will grow at around only 10% and this will be much less than the industry average of 15-17%.


  • Legacy NPL issues remain – We have mentioned a couple of times that while CTG had provisioned and cleared all VAMC bonds this isn’t the end of its legacy NPL issues. Accrued interest remains higher than peers at VND 15,303 billion, or 1.37% of total IEA, and we expect that much of this will attract further provisioning given that CTG also has on its loans book some SOE related projects, as well as some BOT projects that may require more provisioning attention. With limited official information regarding the amount of legacy NPLs under its 2016-2020 restructuring plan, we conservatively forecast that provisioning expenses will continue to stay at high levels, at least in FY2019.


  • Other key metrics such as LDR still need to be normalised – The two main constraints against boosting NIMs are the high LDR ratio and, of course, the high balance of accrued interest. Until these issues are tackled it’s hard to see NIMs improving much.


Given the above it’s hard to see many major medium-term catalysts for CTG’s stock price other than a capital raising itself. While normally a capital raising would be seen as dilutive, if there is speculation that this might be done at a premium, then of course the share price will rise in the current climate. However, it’s too early to speculate about this possibility. Other than that, the bank deserves a discount to the sector average, although the stock will remain a popular one given its liquidity.


Investment thesis – Downgrade to Underperform. HSC sees fair value at VND 22,000, which would value the bank at a P/B of 1.25x. This is a discount to the current sector forward PB average of 1.89x. A discount we think is justified, given concerns regarding some critical potential risks, namely: (1) a high accrued interest balance suggesting residual asset quality issues still, (2) a continuing high pure LDR, (3) limited options to improve CAR, and (4) the FOL now being full at 30%. All of these suggest that the discount to the sector will remain for the time being.


  • Non-banks shares fell further, despite strong gains at PVI and VCI, as market heavy weight BVH dragged the insurers lower and HCM led the brokers down.



  • Consumer and retail names were again weaker despite gains at MCH and MWG. Losers, led by KDF and PNJ outnumbered them by more than three to one, while SAB failed to trouble the scorers.



  • Tech stocks were again both in retreat today.



  • Manufacturing names, also fell today, led by DRC; TMT and HPG. EVE; HHS; HSG and PAC all managed to tread water, while DQC and TCM posted gains.



  • Resource names were again lower, despite GAS bucking the trend and managing to close above the gain line.



  • Real estate and construction stocks, today with the exception of CTD, which posted modest gains, and VHM, which marked time, again declined led by DIG; NVL and HBC.



  • Agriproducts and aquaculture stocks were more mixed, with HAG and BFC posting gains, while DPM; VFG and HNG all traded sideways. Heavy losses at VHC; GTN; SBT and PAN, however, dragged the sector lower overall.



  • Pharmaceutical stocks were also lower, despite further modest gains by IMP.


  • Utilities, transport and logistics stocks again had a tough day at the office, as gainers VSC and NCT were outnumbered by losers led by VNS by more than three to one. VSH marked time.



Vietnamese stocks extend their decline – Both domestic bourses were again down appreciably, although late afternoon trading today saw bargain hunters offering some support. Turnover, while remaining at decent levels, feel somewhat below recent averages. Foreign investor participation rose substantially and today they were net buyers by a margin of three to two. While it appears that the market is seeking to gain support at these levels, global trends and news over the coming days will see if this floor can be achieved.


On the Southern bourse today, VHM and BID struggled with the heavy lifting, contributing under half a percent. They were more than match by negative contributions by VNM; BVH and HPG. In Hanoi, there were no contributors of any note, while PVS again stood out on the wrong side of the ledger. In terms of sectors, banks improved somewhat, however, again investors were reasonably agnostic in terms of the stocks they jettisoned. Today, stocks in retreat only outnumbered the gainers by two to one.


The discounts for the four futures contracts collapsed today, with the nearest dated contract actually managing to achieve a slight premium to the VN30 cash index, while the longer dated contracts traded at discounts now only ranging from 0.5 to 1.7 index points. Despite recovering from intraday lows to close over 925pt, our technical analyst now sees support for the VN Index at 915pt, with the likelihood of further losses. Of course, although we are not technically oversold, and may indeed see a rally for a day or two given four losing sessions, we expect further deterioration in near- to mid-term, with a high US dollar and low crude oil prices doing little to help.


Asian shares & major currencies – Asian shares today fell across the region, as heavy losses continued on Wall Street and US bourses overnight. As for currencies, the US$ (97.11) edged down again from this time a day ago, when measured against its trade weighted ICE index, but still remained over the psychologically important US$ 97 mark. The Euro (1.1343) was buying more greenbacks compared today, as was the Pound Sterling (1.2620). The US currency was buying noticeably fewer Japanese Yen (112.58) today, while it remained largely unchanged versus the Chinese Yuan (6.8979).


Oil prices in free fall – Crude oil price’s slump accelerated from this time a day ago, with the active month WTI futures crude oil contracts trading down to US$49.36 per barrel, and Brent crude also down, albeit to a lesser extent, at US$58.63. Both indices fell below the psychologically important US$50 and US$60 per barrel marks, with the former in particular likely to put pressure on North American shale oil producers if it cannot regain that mark relatively quickly.


Despite those concerns, however, the EIA has announced that by year-end US shale production will top 8 million bpd, and with Russian production in December reportedly reaching record highs, given visible signs of slower economic growth globally, as a resolution to the US/China trade war continues to elude us, the market appears set to remain jittery. It has been questioned by some pundits from the beginning, whether the OPEC+ compromise would be enough to balance supply and demand, with reported inventory rises of over one million barrels at the Cushing hub, which is the delivery point for WTI, seemingly supporting them.


In global macro and general news – Figures released overnight show that the NAHB Housing Market Index for the US slumped to 56pt in December from 60pt a month earlier. It also marked the lowest reading since May 2015. Also in the US, the New York Empire State Manufacturing Index declined from 12.4pt in November to 10.9pt in December. This was also below market expectations calling for a rise to 20pt. Despite tweets from President Trump, the FED looks set to raise interest rates again on Wednesday US time. While the President asserted that rate hikes were lightening workers’ pay packets, employment remains at 49-year lows and wages are still increasing, making the next rate rise all but a foregone conclusion.


The Reserve Bank of Australia at its December meeting left the cash rate at a record low of 1.5%. This result was not unexpected coming from a backdrop of sluggishness in inflation and a slowdown in most housing markets, and extended the current status quo to more than two years. Despite the latter, new home sales in Australia increased 3.6% m/m in November, following a 0.8% m/m contraction a month earlier. Meanwhile, the German Ifo Business Climate Index in December again fell by 1.0pt to 101.0pt, which was the lowest reading since September 2016. At the same time Ifo Business Climate expectation for the month fell by 1.4pt to 97.3pt, more than 1.0pt lower than market expectations.



HCMC – The VN index fell today as turnover narrowed to VND 4,182.33 billion or US$ 179.73 million. The index lost 0.69% and closed at 927.25. 84 stocks up while 205 stocks down. And 1 stocks went to the ceiling while 7 stocks dropped to the floor. Foreigners accounted for 21.86% of the buying value and 12.66% of the selling value.


Foreign buying rose in actual terms and also in percentage terms. While foreign selling also rose further in actual terms but fell in percentage terms. Foreigners turned net buyers to the tune of VND 384.820 billion worth of shares in HCMC. And we saw twenty nine transactions in the put through market today.


Foreigners were active buyers of PNJ; VNM; GEX; CTD and HPG. They also actively sold VNM; CTG; VJC; DXG and HPG. The put through market was less active today with two enormous; two super jumbo; two jumbo; four large and some medium sized & smaller deals accounting for 22.47% of total turnover.


We saw 5,000,000 shares of NVL; 2,831,000 shares of PNJ; 550,000 shares of VJC; 2,050,000 shares of GEX and 1,500,000 shares of VIS going through. Foreigners were less active in the put through session in the PNJ & VIS deals and then fourteen other smaller deals today in the market.


E1VFVN30 was down 1.55% today closing at VND 14,570.


Hanoi – The Hanoi market went down today while turnover came to VND 690.03 billion or US$ 29.65 million. The HN index was down 0.56% to close at 104.42. 65 stocks up while 85 stocks down. And 12 stocks went to the ceiling while 12 stocks dropped to the floor. Foreigners accounted for 1.46% of the buying value and 1.28% of the selling value.


Foreigners were net buyers to the tune of VND 1.27 billion worth of shares. And we saw seventeen medium and small sized deals today during more active put through session in Hanoi accounting for 23.60% of total turnover.


We saw 7,075,633 shares of SHB; 1,422,700 shares of VGC and 554,000 shares of AMV along with some smaller transactions in the put through market today.



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